Following years of focus on the banking sector, the regulatory spotlight is now very much on the insurance industry. The FCA has restructured its supervisory approach towards insurance, sent a shot across the bows of insurer boards with the “Dear CEO” letter of April 2019 and accelerated a range of market-focused activities to tackle what it sees as a lack of customer centricity across the industry.
The “Dear CEO” letter noted that the FCA had identified “significant potential for harm and poor outcomes for customers arising from the product development and distribution approaches in some sectors of the GI market” and that, following previous supervisory attempts by the regulator to increase standards, “many GI firms have not responded appropriately and are not sufficiently focused on customer outcomes.” Given that the Senior Managers and Certification Regime (SMCR) is already in force for insurers, and will take effect for brokers in December 2019, further failings will now directly impact the individual leaders of firms and not just the firm as a whole.
Firms must also pay due regard to:
• the FCA’s guidance consultation,
• thematic review of the insurance distribution chain,
• the market study on pricing,
• the ongoing value-measures pilot,
• the CMA’s work on fair treatment of long-standing customers and pricing.
The FCA has been clear: it will no longer tolerate a lack of customer centricity and it expects firms to respond more directly to its findings: “Some progress has been made following our previous work in this area (i.e. TR15/7 and TR16/6). However, many GI firms have not responded appropriately and are not sufficiently focused on customer outcomes, including the value of the products and services their customers receive.”
In particular, firms need to ensure the conduct MI they receive about each of their products is telling them what they need to know. Senior managers will be expected to take action if any of the following applies to elements of their product suite:
• low claims rate,
• low claim acceptance rate,
• high commission,
• excessive profitability,
• overly restrictive terms and barriers,
• high additional fee income,
• pricing complaint volumes.
Many firms are considering how to respond pragmatically, particularly as the IDD and Duty of Responsibility bed in. As the FCA’s spotlight continues to be on General Insurance, this will become increasingly important.
There is a real change burden with this; firms need to deliver as efficiently as possible, but still ensure they have capacity to transform to meet future customer needs.
Baringa’s regulatory guide for Insurance can be downloaded here.
Baringa is supporting firms in thinking through their approach to all of this, with a particular focus on overall conduct risk management and conduct risk frameworks, product governance and oversight, regulatory change, compliance monitoring and culture.